Today is a good representation of Bitcoin being a non-correlated asset with the S&P 500 down 3.34% today and Bitcoin currently up 4.3%. Notice we say NON CORRELATED not NEGATIVELY CORRELATED.
In recent weeks since coronavirus was announced Bitcoin and digital assets have shown short term correlation to the panicked stock market.
Selectively, over short term intervals, Bitcoin has historically shown a correlation with the stock market. Never in its ten-year history has it over a longer-term time horizon. The recent correlation is not expected to hold in the future. Below shows a chart of Bitcoin’s performance vs the S&P 500 YTD:
The Coronavirus & the upcoming recession?
While the health impacts of the Coronavirus are still unknown, the economic impact cannot be denied. Our friends in China tell us 400M citizens have been self quarantining themselves for close to two months now. That’s greater than the entire of the entire population of the United States, at home, for 1/6th of a year. During this time students have been working from home, meetings are held remote and the majority of factory workers have also been staying in.
To combat economic impact concerns in the U.S. the Fed recently announced a 50 bps cut to interest rates, the highest since the great recession. $100B is also being injected into short term repo markets to fight the overnight liquidity demand for banks in the U.S. (concerning and much less discussed).
Future Fed action is expected this year, not just in the U.S. but across the globe. Goldman Sachs estimates three more rate cuts this year and many are calling for negative interest rates in the U.S. by year-end. Germany is looking at a tax forgiveness plan right now and China has injected $100’s of billions of dollars directly into its stock market to hold prices up since the virus was announced.
We are seeing early signs of a potential recession in the U.S. during the first half of this year.
As more information is released each day, for many analysts the question of a recession is shifting to a matter of when not if in 2020. Example - Today U.S. Factory orders tumbled for the sixth straight month YoY:
Printing Money is Good for Bitcoin
Bitcoin is the scarcest asset to ever exist and this recent monetary stimulus is bullish for our thesis. We will continue to follow the upcoming stimulus and keep you posted on what we are seeing around the world.
Big News from India & South Korea
We received good news yesterday on India’s government opening up access to this asset class, a catalyst that could add significant tailwinds to demand during this market cycle. South Korea, a top-five market by trading volume in the past, also fully acknowledged and legalized crypto assets yesterday.
A Look at Supply and Demand
We are now 66 days from the halving, possibly the most anticipated event ever for Bitcoin in its 10-year history. As we have mentioned in the past, this will greatly reduce the selling pressure for bitcoin and the effects of the event will compound over time. We become more bullish each day the price remains at these levels and believe the longer we consolidate at these prices the more bullish the upcoming cycle will be.
The demand for the asset continues to grow, regardless of price. On-chain analytics show that recent market selling has been from short term holders. The amount of Bitcoin held for over to one year remains near an all-time high. Other long term demand metrics continue to break recent highs as well including miner demand (hash rate) and wallet growth.
Volatility will continue into the halving and provide great opportunities for investors to gain exposure to a non-correlated asset with asymmetric upside.
For fun, we close with a price chart of Bitcoin and S&P 500 price performance since the last halving in 2016:
Onward and Upward,
Coyn and Team